The SRA has now published its consultation response on ‘protecting the client money that solicitors hold’, marking the latest step in its wider consumer protection review.
Having actively engaged with the consultation process through direct feedback to the SRA (see our full response to the SRA here) and ongoing dialogue with our clients, we set out below the key developments and their practical implications for law firms.
The SRA has confirmed that its immediate priority is to strengthen the current framework for safeguarding client money, rather than introduce fundamental structural change. While some longer-term reforms remain under consideration, the regulator is focused on delivering targeted, practical improvements in the near term. This pragmatic approach aligns with feedback from across the profession and our views that there are short term changes that can be implemented to improve consumer protection relatively quickly. Their confirmed changes can be split into two main categories.
1. Accountants’ report regime
One of the most impactful areas of change relates to the accountants’ report framework, which remains central to the SRA’s supervision of client money risks.
The SRA intends to introduce:
Submission of all accountants’ reports for non-exempt firms (not just qualified reports), giving the SRA a more complete view of compliance across firms.
Mandatory annual declarations by firms, confirming their status and key information related to the accountants’ report.
Fixed financial penalties for breaching requirements e.g. late/ non-submission
These changes are designed to address identified gaps in compliance, including instances where firms failed to obtain reports or submitted them late. Broadly speaking, the accountants’ report regime changes are in line with our own response, particularly surrounding improving visibility without creating a disproportionate burden.
For firms, this signals a move toward greater transparency and regulatory visibility.
2. Governance and internal controls
Alongside reporting reforms, the SRA is reinforcing the importance of robust internal governance. The proposals seek to enhance accountability of Compliance Officers for Finance and Administration (COFAs) by introducing safeguards where significant decision-making power is concentrated on a single individual and strengthening checks and balances within firms more broadly.
The SRA intends to introduce:
New criteria restricting owners or managers from holding one/ both key compliance roles exceeding certain thresholds (for example where annual turnover exceeds £600k and/ or the client money balance exceeds £2m at any point in the previous accounting period).
Partial exemption for sole owner-manager firms which meet the client money threshold, who will be prevented from holding the COFA role, only. There will be exemptions for firms exceeding the client money threshold due to abnormal non-representative transactions.
Support packages for compliance officers are being developed.
These measures reflect the SRA’s continued focus on culture, oversight and early risk identification, particularly in light of recent high-profile firm failures.
What this means for firms
Taken together, the SRA’s response signals a clear direction: increased oversight, enhanced reporting, and stronger accountability, without fundamentally altering the current client account model in the short term.
A phased transition is expected, with the changes being implemented in early 2027. Firms should begin preparing by:
Reviewing their accountants’ report processes and timetables
Ensuring systems can support timely and accurate reporting
The SRA are continuing to examine, and will consult on, risk profile changes of firms, and potential notification requirements in respect of structural changes such as mergers and acquisitions. They also continue to consider the model for holding client money.
Our perspective
As a firm specialising in professional practices and SRA reporting, we have been engaging directly with the SRA and working with clients to anticipate and prepare for potential changes.
While many of the final proposals confirmed at this stage align with expectations, the increased regulatory scrutiny, particularly around accountants’ reports, represents a meaningful shift in compliance requirements. Early preparation will be key to ensuring a smooth transition.
We will continue to monitor developments and provide further insight as the SRA moves toward implementation.
If you would like to discuss how these developments may affect your firm, or review your current accountants’ report and governance arrangements, our specialist professional services team would be pleased to help. Get in touch with us today.
Frequently asked questions about the SRA client money consultation
What were the main outcomes of the SRA's latest consultation on client money?
The consultation focused on stronger consumer protection, changes to the accountants’ report regime, increased oversight of firms whose risk profiles change, and clarification of the SRA’s position on residual balances, advance fees and client-to-office transfers. The proposals also include strengthened responsibilities and potential restrictions for Compliance Officers for Legal Practice (COLPs) and Compliance Officers for Finance and Administration (COFAs).
How could the accountants' report regime change for law firms?
The proposed changes include amendments to how accountants’ reports are submitted, along with requirements relating to cease-to-hold reports. The changes are intended to improve transparency and regulatory oversight, although concerns have been raised about the additional reporting burden and the practical implications for firms and reporting accountants.
What do the proposals mean for COLPs and COFAs?
The proposals would strengthen responsibilities for COLPs and COFAs and could introduce additional restrictions on those roles. The aim is to improve accountability and oversight within firms that handle client money, helping regulators identify and address risks more effectively.
Will law firms face greater regulatory oversight under the SRA proposals?
Yes. The proposals include increased scrutiny of firms experiencing growth, restructuring or acquisition activity. The intention is to help the SRA identify changing risk profiles earlier and strengthen consumer protection by ensuring firms remain compliant during periods of significant change.
What is the SRA's position on residual balances, advance fees and client-to-office transfers?
The SRA has confirmed its position on residual balances, advance fees and client-to-office transfers as part of the consultation outcomes. These areas remain key elements of the wider review of client money handling, with the objective of improving consumer protection while maintaining workable processes for legal practices.
Does the consultation response support all of the SRA's proposals?
No. While there is support for greater transparency and some elements of the proposed changes, concerns have been raised about implementation challenges, increased costs for firms and whether the regulator has sufficient capacity to act effectively on additional reporting and oversight requirements.
Why is a risk-based approach to client money regulation important?
A risk-based approach helps focus regulatory attention on firms and situations that present the greatest risks to consumers. This approach supports stronger consumer protection while avoiding unnecessary compliance burdens on firms that already have effective controls and procedures in place.
Who is most affected by the SRA's client money consultation outcomes?
Law firms that hold client money, compliance officers, finance teams and reporting accountants are likely to be most affected. Firms undergoing growth, restructuring or acquisitions may face additional scrutiny, while those responsible for regulatory compliance may need to prepare for changes to reporting and governance requirements. Firms seeking support with regulatory compliance can review professional practices and client money examination services for further information.
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What were the main outcomes of the SRA's latest consultation on client money?
What were the main outcomes of the SRA's latest consultation on client money?
